The CFPB has issued its January 2017 complaint report that highlights mortgage complaints.  The report also highlights complaints from consumers in Tennessee and the Memphis and Nashville metro areas.

General findings include the following:

  • As of January 1, 2017, the CFPB handled approximately 1,080,700 complaints nationally, including approximately 22,900 complaints in December 2016.
  • Debt collection continued to be the most-complained-about financial product or service in December 2016, representing about 31 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 65 percent of the complaints submitted in December 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 109 percent from the same time last year (October to December 2015 compared with October to December 2016).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we have noted in blog posts about prior complaint reports issued beginning in April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
  • Prepaid card complaints showed the greatest percentage decrease based on a three-month average, decreasing about 59 percent from the same time last year (October to December 2015 compared with October to December 2016).  Complaints during those periods decreased from 458 complaints in 2015 to 189 complaints in 2016.  Prepaid cards also showed the greatest decrease based on a three-month average in the November and December 2016 complaint reports.
  • Payday loan complaints in December 2016 were 23 percent less than payday loan complaints in November 2016, representing the product with the greatest month-over-month decrease in complaints.
  • Alaska, Georgia, and Louisiana experienced the greatest complaint volume increases from the same time last year (October to December 2015 compared with October to December 2016) with increases of, respectively, 357,46, and 32 percent.
  • Wyoming, Vermont, and Delaware experienced the greatest complaint volume decreases from the same time last year (October to December 2015 compared with October to December 2016) with decreases of, respectively, 20, 19, and 12 percent.

Findings regarding mortgage complaints include the following:

  • The CFPB has handled approximately 260,500 mortgage complaints.
  • The CFPB found a trend of consumers increasingly identifying issues relating to the issue of “making payments” (which covers loan servicing, payments, escrow accounts).
  • Consumers reported issues involving escrow account shortages, such as the misapplication of funds resulting in an increase in the monthly payment and a lack of explanation for shortages. Other escrow-related issues included the servicer’s purchase of hazard insurance despite the consumer’s provision of proof of coverage and the servicer’s failure to timely submit insurance payments resulting in inadequate coverage.
  • Consumers complained about the loss of timely payments by servicers resulting in negative credit reporting and improper crediting by servicers of electronic monthly payments made via bill pay services through their financial institutions..
  • Consumers attempting to negotiate loss mitigation assistance complained that servicers were slow to respond, made repeated requests for already submitted documents, and provided ambiguous denial reasons.

Findings regarding complaints from Tennessee consumers include the following:

  • As of January 1, 2017, approximately 17,800 complaints were submitted by Tennessee consumers of which approximately 4,700 and 5,800 were from Memphis and Nashville consumers, respectively.
  • Debt collection was the most-complained-about product, representing 34 percent of all complaints submitted by Tennessee consumers, which was higher than the national average rate of 27 percent of all complaints submitted by consumers.
  • Average monthly complaints received from Tennessee consumers increased 8 percent from the same time last year (October to December 2015 to October to December 2016), higher than the increase of 12 percent nationally.

The CFPB’s Fall 2016 rulemaking agenda has been published as part of the Fall 2016 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of October 19, 2016.  Accordingly, given the results of the Presidential election, including its potential impact on the CFPB’s leadership, there is likely to be a post-election reevaluation by the CFPB of its agenda.  The agenda sets the following timetables for key rulemaking initiatives:

Arbitration.  The CFPB released its proposed arbitration rule in May 2016 and the comment period ended on August 22, 2016.  The Fall 2016 agenda indicates that the CFPB “is reviewing and considering comments on the proposed rule” as it “considers development of a final rule for early 2017.”  The agenda gives a February 2017 estimated date for a final rule.  In recent days, we have heard speculation that the CFPB will issue a final rule before Donald Trump’s inauguration as President on January 20.  As we discussed in a recent blog post, a final arbitration rule or other new final rules issued by the CFPB (and potentially any final rules issued since late May 2016) could be nullified by Congress under the Congressional Review Act (CRA).  The CRA establishes a special set of procedures that allow Congress to pass a joint resolution disapproving a rule which cannot be filibustered in the Senate and can be passed by only a simple majority vote.

Payday, title, and deposit advance loans.  The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016.  While there has also been speculation that the CFPB will attempt to finalize a rule by January 20, that possibility seems more remote given the unprecedented level of comments (approximately one million) received by the CFPB and the complexity of the proposed rule.  The Fall 2016 agenda does not give an estimated date for a final rule.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel.  It has been reported that the SBREFA panel for the CFPB’s debt collection rulemaking met with small entity representatives (SER) at the end of August 2016.  Within 60 days from the date it is considered to have “convened,” the panel must submit a report to the CFPB on the input received from the SERs.  However, the report will not become public until the CFPB issues its proposed rule.

The CFPB’s proposals only cover “debt collectors” that are subject to the FDCPA.  They are not intended to apply to a first-party creditor collecting its own debts or to a servicer when collecting debts that were current when servicing began to the extent the creditor or servicer would not be a “debt collector” under the FDCPA.  When it issued the proposals, the CFPB stated that it “expects to convene a second proceeding in the next several months” for creditors and others engaged in debt collection not covered by the proposals, noting that it believes a separate SBREFA process “is the most efficient way to proceed, particularly because it will allow participants to provide more focused and specific insights.”

In the Fall 2016 agenda, the CFPB states that it “expects to convene a separate SBREFA proceeding focusing on companies that collect their own debts in 2017.”  The agenda gives a February 2017 estimated date for further prerule activities.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Fall 2016 agenda, as it did in its Fall 2015 and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Spring 2016 agenda estimated an August 2016 date for further prerule activities, the new agenda moves that date to January 2017.  As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Larger participants.  As it did in its Fall 2015 and Spring 2015 agendas, the CFPB states in the Fall 2016 agenda that it is considering “larger participant” rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.”  It also repeats its previous statement that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a May 2017 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a March 2017 date.  The CFPB states in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules.  In July 2016, the CFPB issued a proposed rule containing both substantive amendments and technical corrections to the final TILA-RESPA Integrated Disclosure rule.  The comment period on the proposal ended on October 18, 2016 and the Fall 2016 agenda gives a March 2017 estimated date for issuance of a final rule.  The Fall 2016 agenda gives a March 2017 estimated date for a proposed rule “to amend certain provisions of Regulation C to make technical corrections and to clarify certain requirements under Regulation C” and a proposed rule “to amend Regulation B to reconcile how creditors may collect information about the ethnicity and race of applicants to clarify how financial institutions and creditors subject to Regulation C and Regulation B may comply with both regulations.”

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 and Spring 2016 agendas, both of these topics continue to be listed in the Fall 2016 agenda as “long-term action” items with no estimated dates for further action.  The Office of Management and Budget defines “long-term action” items as “items under development but for which an agency does not expect to have a regulatory action within 12 months after publication of this edition of the Unified Agenda.”

The D.C. Circuit issued its long-awaited decision in PHH Corporation v. CFPB. In reversing the decision of Consumer Financial Protection Bureau (CFPB) Director Cordray to impose an enhanced penalty of $109 million on PHH for its use of a captive (wholly-owned) mortgage reinsurer, the court made several landmark rulings.

First, it held that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional. The court held that it was a violation of Article II for the CFPB to lack the “critical check” of presidential control or the “substitute check” of a multi-member governance structure necessary to protect individual liberty against “arbitrary decisionmaking and abuse of power.” The court remedied this constitutional defect by severing the removal-only-for-cause provision from the Dodd-Frank Act. Under the ruling, Director Cordray now serves at the will of the President and is subject to supervision and management by the President. In a footnote, the court acknowledged that this may create some fallout in other cases, but left it for other courts to address.

It also rejected the CFPB’s argument that statutes of limitations do not apply to its administrative enforcement actions. The court’s holding was straightforward: If Congress had intended to alter the standard statute of limitations scheme, it would have said so. “[W]e would expect Congress to actually say that there is no statute of limitations for CFPB administrative actions . . . But the text of Dodd-Frank says no such thing.”

In addition, the court held that the plain language of RESPA permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide. This is consistent with HUD’s prior interpretation. For the first time in 2015, in prosecuting the case against PHH, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited. The court rejected this on the ground that the statute unambiguously allows the kinds of payments that the CFPB’s 2015 interpretation prohibited. We have blogged about the CFPB’s erroneous interpretation of the RESPA provisions at issue in this case.

Finally, the court further admonished the CFPB by alternatively holding that—even assuming that the CFPB’s interpretation was permitted under any reading of RESPA—the CFPB’s attempt to retroactively apply its 2015 interpretation, which departed from HUD’s prior interpretation, violated due process. It held that “the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.”

Notably, the court explicitly declined to address the CFPB’s claim that each mortgage insurance payment made in violation of RESPA triggers a new three-year statute of limitations for that payment. The CFPB’s view on this point was one basis that allowed it to dramatically increase the penalties it sought from PHH. The court’s decision not to address this point in its opinion makes it likely that this will not be the last circuit court opinion required to resolve the case.

The opinion of the court also did not address one aspect of the CFPB Director’s prior decision that disgorgement of the entire amount of the premiums was required, without an offset for the claims paid, which had also added considerably to the penalty amount. The court states in footnote 24 that if a mortgage insurer paid more than reasonable market value for reinsurance, the disgorgement remedy is the amount that was paid above reasonable market value. The court did not expressly address the Director’s approach of ignoring the claims paid. The concurring/dissenting opinion by Judge Henderson does address this point, however, indicating that disgorgement must be reduced by the claims paid.

Because the opinion did not dismantle the CFPB, the court remanded the case to the CFPB for consideration of whether PHH violated RESPA as interpreted by HUD.

The CFPB has released its Spring 2016 rulemaking agenda.  The agenda sets the following timetables for key rulemaking initiatives: 

Arbitration.  The Spring 2016 agenda does not reflect the CFPB’s release of its proposed arbitration rule on May 5, 2016, stating only that the CFPB “is preparing to issue a Notice of Proposed Rulemaking this spring.”  The CFPB’s proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.  We do not expect to see a final rule until next year.

Payday and deposit advance loans.  The Spring 2016 agenda also does not reflect the CFPB’s announcement that it will hold a field hearing on small dollar lending in Kansas City, Missouri on June 2, 2016.  We anticipate the field hearing will coincide with the CFPB’s release of its proposed rule which is expected to cover single-payment payday and auto title loans, deposit advance products, and certain high-rate installment and open-end loans.  The Spring 2016 agenda indicates only that the CFPB is “conducting a rulemaking to address consumer harms from practices related to payday loans and other similar credit products” and gives a June 2016 estimated date for issuance of a Notice of Proposed Rulemaking (NPRM).

Prepaid financial products.  In November 2014, the CFPB issued a proposed rule for prepaid financial products, including general-purpose reloadable prepaid cards and certain digital and mobile wallets.  The Spring 2016 agenda estimates the issuance of a final rule in July 2016.  The Fall 2015 agenda had estimated that a final rule would be issued in March 2016.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Spring 2016 agenda, as it did in the Fall 2015 agenda, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Fall 2015 agenda had estimated a January 2016 date for further prerule activities, the new agenda moves that date to August 2016.  In light of the fact that most of the banks subject to CFPB supervisory jurisdiction have changed the order in which they process electronic debits, we believe the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process such debits.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In the Spring 2016 agenda, as it did in the Fall 2015 agenda, the CFPB states that “it is in the process of analyzing responses to a survey seeking information from consumers about their experiences with debt collectors and is engaged in qualitative testing to determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”  The agenda estimates that further prerule activities, which are expected to involve the convening of a SBREFA panel, will occur in June 2016.  The CFPB had estimated in its Fall 2015 agenda that further prerule activities would occur in February  2016.

Larger participants.  As it did in its Fall  2015 agenda, the CFPB states in the Spring 2016 agenda that it is considering  “larger participant” rules for “consumer installment loans and vehicle title loans.”  It also repeats the statement in the Fall 2015 agenda that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the prior agenda estimated a September 2016 date for prerule activities, the new agenda estimates a December 2016 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  The Spring 2016 agenda estimates a December 2016 date for prerule activities.  We recently reported that the CFPB had filled the position of Assistant Director for the Office of Small Business Lending Markets.  The CFPB’s job posting indicated that the Assistant Director would head the CFPB’s team involved in developing rules to implement Section 1071.  In the Spring 2016 agenda, the CFPB states that it “will focus on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for information-gathering under this section.”

Mortgage rules.  In November 2014, the CFPB issued a proposal to amend various provisions of its mortgage servicing rules.  The Spring 2016 agenda estimates issuance of a final rule in July 2016.  The previous agenda had estimated a June 2016 date.  The new agenda also estimates a September 2016 date for issuance of a proposed interagency rule to implement Dodd-Frank amendments to FIRREA concerning appraisals.  The previous agenda had estimated an April 2016 date.  In April 2016, the CFPB announced its intention to reopen the rulemaking for the TILA/RESPA Integrated Disclosure rule.  At that time, the CFPB indicated that a NPRM would likely be issued in late July and, consistent with that timetable, the Spring 2016 agenda estimates a July 2016 date for a NPRM.

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 agenda, both of these topics continue to be listed as “long-term action” items in the Spring 2016 agenda.

 

The CFPB has issued its April 2016 complaint report which highlights complaints about mortgages and complaints from consumers in California.  The CFPB began taking complaints about mortgages in December 2011.

General findings include the following:

  • As of April 1, 2016, the CFPB handled approximately 859,900 complaints nationally, including approximately 26,500 complaints in March 2016.  As of April 1, 2016, debt collection continued to be the most-complained-about financial product or service, representing about 26 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 69 percent of the complaints submitted in March 2016.
  • Complaints about “other financial services” showed the greatest percentage increase based on a three-month average, increasing about 53 percent from the same time last year (January to March 2015 compared with January to March 2016).  This category includes complaints about debt settlement, check cashing, credit repair, refund anticipation checks, and money orders.  Complaints during those periods increased from 126 complaints in 2015 to 193 complaints in 2016.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 14 percent from the same time last year (January to March 2015 compared with January to March 2016).  Complaints during those periods decreased from 489 complaints in 2015 to 420 complaints in 2016.  In the March 2016 complaint report, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • Student loans were the product with the greatest month-over-month increase in complaints, with complaints increasing by 83 percent from February to March 2016.  We note that, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects that in February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.New Mexico, Indiana, and Minnesota experienced the greatest complaint volume increases from the same time last year (January to March 2015 compared with January to March 2016) with increases of, respectively, 32, 29, and 26 percent.
  • Hawaii, Vermont, and Maine experienced the greatest complaint volume decreases from the same time last year (January to March 2015 compared with January to March 2016) with decreases of, respectively, 29, 23, and 20 percent.

Findings regarding mortgage complaints include the following:

  • The CFPB has handled approximately 223,100 mortgage complaints, representing about 26 percent of total complaints. Mortgages are the second most-complained-about product or service after debt collection.
  • The most-complained-about issue involved payment-related problems.  Problems raised in complaints included prolonged loss mitigation review processes in which the same documentation was repeatedly requested, a lack of responsiveness from the consumer’s single point of contact, receipt of conflicting foreclosure notices while the consumer was undergoing a loss mitigation assistance review, denial of modification applications, and offers of unaffordable modification terms.
  • Problems related to servicing transfers were also raised in complaints (such as not being properly informed of a transfer), a prior or current servicer’s failure to apply payments made around the time of transfer to the consumer’s account, a lack of explanation for increased monthly escrow payments, and a failure to provide a new servicer with documentation related to a loss mitigation review process that was ongoing at the time of servicing transfer.
  • Other problems raised in complaints involved payments not being accepted or applied as intended particularly for consumers approved for a loss mitigation option, difficulty in communicating with servicers that resulted in confusing and contradictory information, escrow discrepancies (such as over-collection, unexplained shortages and untimely tax and insurance disbursements), the failure by servicers to release funds needed for repairs after receiving insurance proceeds from the consumer that were paid to cover property damage, and difficulties with the loan origination process (such as unresponsive loan representatives, requirements for multiple loan applications and processing delays resulting in loss of favorable interest rates or expiration of rate locks).

In its press release about the complaint report, the CFPB highlighted the mortgage loan complaints regarding loss mitigation, servicing transfers, and communications with servicers.  These matters are of significant concern to the CFPB, because it views them as presenting a greater risk of consumer harm.  One must consider the potential for the CFPB to use the complaints to justify decisions regarding revisions to the RESPA and TILA servicing requirements in the upcoming final rule or to provide a basis for enforcement activity.

Findings regarding complaints from California consumers include the following:

  • As of April 1, 2016, approximately 118,900 complaints were submitted by California consumers of which approximately 50 percent were from consumers in the Los Angeles and San Francisco metro areas.
  • Mortgages are the most-complained-about product, representing  32 percent of the complaints submitted by California consumers and 26 percent of complaints submitted by consumers nationally.
  • Debt collection and credit reporting were, respectively, the second and third most-complained-about financial products by California consumers.  The percentage of debt collection and credit reporting complaints submitted by California consumers was lower than the national average.

 

 

 

 

 

As we have addressed, Congress passed the Helping Expand Lending Practices in Rural Communities Act of 2015 (HELP Act) on December 4, 2015, in efforts to expand the designation of additional areas as being “rural” under Regulation Z of TILA.   The HELP Act was passed after the CFPB issued a final rule to expand the definition of “rural areas” under Regulation Z with regard to the authority of small creditors to make certain qualified mortgage loans under the ability to repay rule and avoid the escrow account requirement for certain higher priced mortgage loans, as we previously discussed.

The CFPB issued its first rule to the implement the HELP Act on March 3, 2016. The procedural rule establishes the application process for persons or businesses who would like to have a geographic area designated as “rural.” Further discussion can be found here.

On March 22, 2016, the CFPB announced that it issued an interim final rule to implement the HELP Act’s amendments to TILA which would potentially increase the number of creditors that may be eligible for certain special provisions under TILA. The provisions permit the origination of balloon-payment qualified mortgages and balloon-payment high cost mortgages, and provide an exemption from the requirement to establish an escrow account for higher-priced mortgage loans. Before the HELP Act, to be eligible for these provisions, a small creditor had to operate predominantly in rural or underserved areas, meaning that the small creditor had to make more than half of its covered mortgage loans on properties located in rural or underserved areas in the prior calendar year. In contrast, the HELP Act provides that a small creditor will be eligible even if it operates in rural or underserved areas that are not the predominant area of its operations. More specifically, Congress struck out the word “predominantly” from TILA provisions.

The interim final rule amends Regulation Z to provide that a small creditor will be eligible for the special TILA provisions if it originates at least one covered mortgage loan secured by a property located in a rural or underserved area (1) in the prior calendar year or (2) for applications received before April 1 of a calendar year, in either of the two prior calendar years.

In addition, the final rule amends the current rule for determining whether an area is rural for the purposes of Regulation Z, by inserting a reference to any areas designated as rural through the application process mandated by the HELP Act.  Also, this amendment establishes that only counties or census blocks are eligible for designation as rural under the application process, which is consistent with the current definition of rural area under Regulation Z.

This final rule is effective on March 31, 2016. Comments are due by April 25, 2016. However, the petition process may be limited as it will apply only to lenders that do not make at least one loan in a census block or county already designated as rural.

A copy of the interim final rule can be found here.

 

The CFPB released the Home Mortgage Disclosure (Regulation C) Small Entity Compliance Guide  on December 1, 2015.  According to the CFPB, the purpose of the Compliance Guide is to provide an accessible summary of Regulation C, in light of the final rule amending the Home Mortgage Disclosure Act (HMDA) which we summarized here.  In addition, the CFPB has highlighted information that it believes will be helpful to financial institutions in implementing the final HMDA Rule.  Attachments at the end of the Compliance Guide include a sample data collection form, action taken chart, and sample notices of HMDA data availability.

The Compliance Guide along with other resources, such as the HMDA Executive Summary, Summary of reportable data, HMDA institutional coverage charts, and other related resources can be found here.

We will be further discussing the implications of the final HMDA Rule for mortgage lenders during our webinar on January 7, 2016.  Registration for the webinar is available at this link.

On November 18, 2015, the U.S. House of Representatives passed a bill that would provide a safe harbor exception for depository institutions from certain provisions of the Truth in Lending Act and Regulation Z, and for mortgage originators from the steering prohibition of the loan originator compensation requirements under Regulation Z (LO Comp Rule). By a vote of 255 to 174 the House passed the “Portfolio Lending and Mortgage Access Act” (H.R. 1210). The text of the bill can be found here.  To take effect immediately, the bill would expressly exempt depository institutions from suit for violation of the Truth in Lending Act’s general ability to repay requirements and certain related requirements with respect to a loan that, since origination, the creditor has held on their balance sheet, while the loan also complies with the prepayment penalty restrictions imposed by Dodd-Frank on qualified mortgage loans. Such a loan could qualify for the safe harbor even if it provided for a balloon payment.

The bill would also provide a safe harbor for loan originators from the LO Comp Rule’s prohibition on steering a consumer from a mortgage loan for which the consumer is qualified and that is a qualified mortgage loan to a non-qualified mortgage loan, when the originator and the consumer receive a statement of intent from the creditor indicating that the creditor intends to hold the loan on their balance sheet for the life of the loan and that creditor is a depository institution.

Proponents of the bill state that under current requirements, customers are forced to fit into certain prefabricated financial products, thus limiting access to credit for some demographic groups. Opponents of the bill claim the safe harbor would create a sense of déjà vu for the types of financial products that led to the 2009 financial crisis. The bill now heads to the Senate where its prospects remain uncertain. Per the White House, the President has threatened that if presented with the bill he would issue a veto.

The CFPB has issued a final rule that revises the definitions of “small creditor” and “rural areas” under Regulation Z of the Truth in Lending Act (TILA). The final rule is effective January 1, 2016. We previously reported on the CFPB proposal to adopt these amendments.

The CFPB believes that small creditors play an important role in the mortgage industry because they generally try to maintain ongoing relationships with customers in a single community. The CFPB created special small creditor provisions with regard to certain Regulation Z requirements. Certain provisions apply to small creditors in general, while other provisions apply to small creditors that operate predominantly in rural or undeserved areas.

More specifically, small creditors are able to do the following:

  • Extend qualified mortgages that are not subject to the 43 percent debt-to-income ratio or the underwriting requirements of Appendix Q under the ability to repay (ATR) rule, if the loans are retained in portfolio;
  • Extend balloon-payment qualified mortgages, if they operate predominantly in rural or underserved areas;
  • Extend balloon payment qualified mortgages under a temporary provision whether or not they operate predominantly in rural or underserved areas;
  • Include balloon-payment features in high-cost mortgage loans that satisfy certain small creditor qualified mortgage loan provisions; and
  • Avoid the requirement to establish escrow accounts for certain higher-priced mortgage loans.

Additionally, the annual percentage rate ceiling for a first lien loan to be a non-higher priced mortgage loan that is eligible for the qualified mortgage safe harbor under the ATR rule is higher for small creditors than other creditors (i.e., less than 3.5 percentage points above a benchmark rate as opposed to less than 1.5 percentage points above the benchmark rate).

To increase the number of financial institutions eligible for these special provisions under Regulation Z, the final rule does the following:

  • Revises the definition of “small creditor” by increasing the loan origination limit for determining eligibility for small-creditor status from 500 originations of covered transactions secured by a first lien to 2,000 originations. Significantly, originated loans held in portfolio by the creditor and its affiliates are excluded from the 2,000 loan cap.
  • Includes the assets of the creditor’s affiliates that regularly extended covered transactions in the calculation of the $2 billion asset limit for small-creditor status. The CFPB took this step to prevent larger creditors from attempting to fit within the small creditor provisions through organizational changes.
  • Expands the definition of “rural area” to include either: (a) a county that meets the current definition of a rural county; or (b) a census block that is not in an urban area as defined by the U.S. Census Bureau. Additionally, the rule allows creditors to rely on a new automated tool provided on the CFPB website to determine whether properties are located in rural or underserved areas, or on the Census Bureau’s website to assess whether a particular property is located in an urban area (based on the Census Bureau’s definition).

However, the final rule reduces the time period used to determine whether a creditor is operating predominantly in rural or underserved areas from any of the three preceding calendar years to the preceding calendar year. To address burdens based on this change the rule adds a grace period in some circumstances, allowing a creditor that does not meet one or more of the requirements for a small creditor or a creditor that operates predominantly in rural or underserved areas in the preceding calendar year to still act as such a creditor with respect to applications for covered transactions received before April 1 of the current year.

With regard to the exemption from the requirement to establish an escrow account for a higher priced mortgage loan, the rule ensures that creditors who established escrow accounts solely to comply with the current rule will still be eligible for this exemption if they qualify under the rule as a small creditor operating predominantly in rural or underserved areas.

Finally, the rule extends the sunset date of the temporary provisions for small creditors to make balloon-payment qualified mortgage loans and high cost mortgage loans without regard to whether they operate predominantly in rural or underserved areas to transactions with applications received before April 1, 2016.

The CFPB has entered into a proposed consent order with a mortgage company and its CEO to settle charges that the company paid bonuses and higher commissions to loan officers in violation of the Regulation Z loan originator compensation (LOC) rule.  The consent order would require the company to pay $18 million in redress to consumers and a $1 million civil penalty, and would require the CEO to pay an additional $1 million civil money penalty.

The LOC rule prohibits mortgage lenders from paying compensation to loan originators that is based on a loan’s interest rate or other terms.  The alleged conduct occurred before January 1, 2014, and was subject to the original LOC rule adopted by the Federal Reserve Board under Regulation Z.  On January 1, 2014, a revised version of the LOC rule adopted by the CFPB pursuant to Dodd-Frank became effective.

In its complaint filed in a California federal court, the CFPB alleged that the mortgage company and CEO violated the LOC rule and the Consumer Financial Protection Act by implementing a compensation plan that incentivized loan officers to steer consumers into higher-rate mortgages.  The complaint alleged that the company used the following unlawful compensation methods:

  • The company created “employee-expense accounts” into which it deposited compensation based on the profits from a loan officer’s closed loans.  Loan officers could receive periodic bonuses from these accounts or use the accounts to grant “price concessions” to consumers, such as interest-rate discounts and credits for RESPA-tolerance cures and appraisal costs.  According to the CFPB, such concessions allowed loan officers to close and earn commissions on loans they would have otherwise lost to competitors.
  • After eliminating the payment of bonuses from the expense accounts, in addition to allowing loan officers to continue using the accounts for price concessions, the company also allowed loan officers to use the accounts “to cover the cost of individual commission-rate resets.”  According to the CFPB, the resets allowed the loan officers “to give themselves raises on future loan transactions” and “convert profits from earlier high-interest loans into commission income.”

In addition to ordering the mortgage company and CEO to pay monetary redress and civil money penalties, the consent order permanently enjoins them from paying compensation in violation of the LOC rule and CFPA.

In November 2014, the CFPB settled another loan originator compensation case in which a lender was alleged to have made contributions into “expense accounts” that were used to pay quarterly bonuses to its loan originators.  The CFPB considered the contributions to be based on the interest rates charged on the originators’ loans.